It has been an eventful first quarter of the year. When we started 2023, expectations were for a recession in fairly short order, for markets to continue to tank, and for the news to remain bad. Instead, we end the quarter in a much better place than we started. Economic growth is significantly positive. Markets are up, with the Nasdaq now in a new bull market. And while there have been significant negative events—the banking crisis comes to mind—the actual effects we are seeing from those events simply are not that bad.

There has been surprisingly little worry reported by advisors and readers in the past couple of weeks. With the headlines in play—bank failures, a recession coming, commercial real estate starting to crash, and so forth—I would have expected more concerns. But it seems that people are realizing that, despite all the headlines, things are actually not all that bad.

Each week, we break down the latest U.S. economic reports, including what the results mean for the overall health of the economy. Here, you will find how economists’ forecasts compare with actual results, key takeaways to consider, as well as a list of what’s on tap for the week ahead. 

There were two events that mattered this week. First was the regular Fed meeting on interest rates, where the Fed ended up raising rates by the expected 25 bps. Even as it did, though, Chair Powell led the press conference with unexpectedly dovish commentary. He explicitly said that the Fed was aware of the stress in the financial system, that it would have negative effects on the economy, and that it would affect future Fed decisions. All told, this was about as dovish a rate increase as you can get. On the whole, that seemed to leave markets feeling if not good, then at least not bad.

Yesterday, the Fed completed its regular meeting and announced that it would increase interest rates by 25 bps, or a quarter percentage point. This move was in line with expectations, and markets shrugged. Even at the press conference, when some awkward questions were asked (which Chair Powell ducked), markets bounced around but remained calm. But then something else happened. After Powell had gone to some trouble to assure people that their deposits were safe (without actually committing to anything), Treasury Secretary Janet Yellen was asked whether there were plans to dial up deposit insurance across the board. She said no, and then the market started to sell off.

Each week, we break down the latest U.S. economic reports, including what the results mean for the overall health of the economy. Here, you will find how economists’ forecasts compare with actual results, key takeaways to consider, as well as a list of what’s on tap for the week ahead. 

On one hand, the answer to “what mattered this week?” is an easy one: the banks. On the other hand, the more difficult questions are, why does it matter and what does it all mean? So, let’s take a look at what happened and exactly why it matters.

My colleague Sam Millette, director, fixed income on Commonwealth’s Investment Management and Research team, helped me put together this month’s Market Risk Update. Thanks for the assist, Sam! Let’s take a closer look.

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam! Let’s take a closer look.

Starting last Friday and extending over the weekend, we saw two very large bank failures: Silicon Valley Bank (SVB) and Signature Bank. Those followed the collapse last week of Silvergate, the “crypto bank.” These are some of the largest bank failures in U.S. history, and they all happened in the past several days. What is going on here—and could we be headed for the next Great Financial Crisis?

Each week, we break down the latest U.S. economic reports, including what the results mean for the overall health of the economy. Here, you will find how economists’ forecasts compare with actual results, key takeaways to consider, as well as a list of what’s on tap for the week ahead. 

I tried this format a week ago—looking “beyond the numbers” to what the data really means—and the feedback was good. So, here we go again.

Two moments mattered this week—one pretty good, all things considered, and the other bad, potentially very bad. Let’s start with the good one.

There is a lot riding on the monthly jobs report, which comes out tomorrow. For the economy, more jobs are good: more workers, more wage income, more spending ability, and so forth. There’s no real downside. But for financial markets, a strong report would be problematic. Those workers—earning and spending their wages—add to demand, which adds to inflation. So, a strong report would be bad news for the Fed, for interest rates, and for markets. This is the problem we face tomorrow. 

After a strong January, markets continued to rally in early February, only to roll over and end the month down. Fears about inflation rebounded, and worries that the Fed would hike rates farther and faster dominated markets. While the economic data remained solid, this good news was bad news for markets, as it was seen as a sign of higher inflation and interest rates.

Each week, we break down the latest U.S. economic reports, including what the results mean for the overall health of the economy. Here, you will find how economists’ forecasts compare with actual results, key takeaways to consider, as well as a list of what’s on tap for the week ahead. 

I’m going to try something new today. Rather than pick a specific topic to talk about, I’d like to look at the past week and discuss what everything means going forward. When I give talks, the usual title is “Beyond the Numbers,” where I present not only the data but what it means. Indeed, there are a lot of numbers out there every week, and not all of them mean anything. Of those that do, quite a few mean something different than what most people think. So, let’s take a look at what happened in the past week and what it means in the medium to longer term.

After a strong January, markets softened in February. U.S. markets were down by low single digits, international markets dropped, and emerging markets performed worst of all. The primary drivers were the disappointing inflation data and rising longer-term interest rates. Still, job growth exceeded expectations, and service sector business confidence bounced back.